Fed/Logan: Caution Required on Interest Rate Cuts

Foreks - Dallas Fed President Lorie Logan stated that the U.S. central bank should exercise caution regarding further interest rate cuts to avoid inadvertently reigniting inflation. In her speech at an energy conference held at the Dallas Fed, Logan noted, after making "significant progress" in bringing inflation down from 40-year highs, that she anticipates the FOMC will likely need more rate cuts to complete its journey. However, she added, "It is hard to be certain how much cutting might be needed and over what timeframe."

Logan emphasized, "If we lower the neutral interest rate too much, inflation could reignite and the FOMC may need to change course. I believe it is best to proceed cautiously in these uncertain but potentially very shallow waters." She pointed out upward risks to inflation, including a possible rise in business investments post-election and consumer spending. Logan expressed her view that, although the labor market is cooling with an unemployment rate of 4.1%, it has not significantly worsened.

While Logan mentioned that the recent rise in Treasury yields could slow the economy more than the Fed intends and pose a downside risk for employment, she also indicated that Fed policy may not be restraining the economy as much as it appears due to the likely increase in the neutral rate in recent years. The Dallas Fed President continued, "I remain open-minded as I assess what the next step in monetary policy could be, examining economic data and financial conditions, and listening carefully to my contacts in business and the community."